Pekelo explains the sell off

Discussion in 'Technical Analysis' started by Pekelo, Feb 7, 2018.

  1. Pekelo

    Pekelo

    You guys know how modest I am, so I figured I would give my honest explanation of the last few days' action in technical terms.

    Forget about memo and interest rates hike, eventually it doesn't matter what triggered the sell off, it has been built into the market for a long time, but specially after the January rally. Simply put, the market went vertical, and anytime when that happens it comes down hard too. It happened to Bitcoin 7 weeks ago, I saw it, I predicted it, and then it happened.

    I also so the SPX going vertical specially on the weekly chart, but got a bit complacent about it. After 2 years of relentless rallying, who can blame us? Anyhow, I like to use the spring analogy: The price is like an over stretched spring, and once it is let go, it fluctuates back and forth widely.

    I usually use Bollinger Bands to catch market turns, and once a timeframe's BB is penetrated, I switch to a larger time frame. The the market started to fall last week, I was expecting the a hard bounce from the lower line on the daily chart, what was around 2720. When that didn't hold, the weekly frame came to play.

    I am showing here the weekly SPX chart. What you can not see is the crazy overnight action of Sunday night. Futures bottomed around 2530, what is really close to the lower BB, and the hard bounce came from there. It is not an exact science, sometimes the price doesn't reach the line, sometimes it penetrates it and then bounces. But overall that is the area where you watch for a change in direction. By the way, the daily chart doesn't show that well the vertical nature of the price action, but the weekly and monthly do.

    OK, you say, we got it, over stretched spring, weekly BB, we got. But where do we go from here now? Well, after the bounce the minimum target is the SMA line, what is around 2750. That is where the rally action can get sour and turn back down again. But if that line is cleared, we are looking at touching the upper BB again and a doubletop.

    TL,DR: The market went vertical, and what goes up quick, must come down hard, be it crypto or the general market.
     
    piezoe and tommcginnis like this.
  2. NeoTrader

    NeoTrader

    You should consider working for cnbc, bloomberg or writing for any of the bogus "reports"... Or all of them at once... Maybe you're even trying to pave your way there with all the usual "hindsight knowledge"!
    Keep up the "good work"!:D
     
    johnnyrock, SunTrader and cole_ like this.
  3. AAPL lowers guidance. XOM & CVX miss.

    Why does everyone out there seem to be overlooking these three huge fundamental points that changed between Thursday and Friday trading hours? Against the backdrop of a generally disappointing earnings season, no less.
     
    tommcginnis likes this.
  4. I'm not usually a "pure technicals" guy, but Pekelo gives us a pretty fair analysis, IMO.

    In the screen capture below (and apologies for being redundant from other threads), the yellow trend sits ~20pts ON TOP OF a two year trend, and has been a fair guide for option-writing at/above that line. Similar to Pekelo's Bollinger Bands use, I run a trio of a SMA mean, and two 'envelope' lines set at 2%. (A fair range for 1-2 week holds.)

    We've ridden under and even *temporarily* pierced the top side of the envelope for the better part of two years, and of course, at Thanksgiving, punched it hard, relaxed a bit, and then rode it hard for most of January. "Ouch!" is right. Having punched right through the bottom now -- WOW!

    As we're about AT that yellow trend line, my 'brick-on-a-spring' pendulum (your 'spring' above) comes into play: "whither the market now?" Yipes! Who knows?

    My answer is, if these technicals point to a market out-of-bounds with its fundamental realities (back to FOMC-->interest rates-->backdoor Monetary Tightening; solid earnings; global econ growth; US tax restructuring; fiscal boost ('infrastructure-R-U.S.'); starting from an overbought market) -- everything that we're seeing makes perfect sense. (*My* wonderment is, "Where was all this sense in the month of JANUARY?") So the short answer is, "We're right about where we need to be."

    So that yellow trend line stays -- with an expectation that we continue *material*, *robust* growth, ~20pts underneath it.


    SPX0207openCapture.PNG
     
    Last edited: Feb 7, 2018
  5. toc

    toc

    SPY 220 coming soon to theaters nearby.
     
  6. Buy1Sell2

    Buy1Sell2

    This appears to be a vanity thread. Good work on the analysis.
     
    Visaria likes this.
  7. "Guilty!" {holds hand up.}

    Good point. At least for the DOW, but it was a worldwide route, too -- so lots of stuff in play.
     
  8. Well, that their Dow components isn't even my point (I don't even follow the Dow and had to read an article explaining why a 1000 point drop was news).

    The disappointing earnings season was the general market condition. AAPL, XOM, & CVX were catalysts sufficient to bring it back to reality after like 20 consecutive green days.
     
  9. Buy1Sell2

    Buy1Sell2

    Likely good news for the market. Now the other companies can move the SP on their own fundamentals which will be improving now.
     
    #10     Feb 7, 2018